Slide 1: Fourth Quarter 2016 Earnings Conference Call
Ellington Financial LLC (NYSE: EFC) Fourth Quarter 2016 Earnings Conference Call February 14, 2017
Slide 2: Important Notice
Important Notice Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Our actual results may diff
Slide 3: Fourth Quarter 2016
Fourth Quarter 2016
Slide 4: Operating Results
Operating Results Quarter Quarter Ended % of Ended % of Year Ended % of December 31, Per Average September 30, Per Average December 31, Per Average (In thousands, except per share amounts) 2016 Share Equity 2016 Share Equity 2016 Share Equity Credit: Interest income and other income $ 11,902 $ 0.36
Slide 5: Ellington Financial: Fourth Quarter Highlights
Ellington Financial: Fourth Quarter Highlights Net income of $1.7 million, or $0.05 per share Continued to shrink our high yield credit hedges during the quarter We estimate that in our structured credit portfolios we’ve reduced our corporate credit hedges by over Overall Results 98% as compar
Slide 6: Ellington Financial: Fourth Quarter Highlights (continued)
Ellington Financial: Fourth Quarter Highlights (continued) Operating Core expenses of $5.1 million–includes base management fees and other operating expenses Expenses Expense ratio of 3.1% for the fourth quarter Leverage Debt to equity ratio (excluding U.S. Treasury securities): 1.63:1 as of D
Slide 7: Ellington Financial: Credit Strategy
Ellington Financial: Credit Strategy Fourth quarter of 2016 was characterized by sharply higher interest rates and increased market volatility Rise in long-term interest rates during the fourth quarter was one of the largest quarterly increases ever Speculation of market participants around po
Slide 8: Ellington Financial: Agency Strategy
Ellington Financial: Agency Strategy The yield curve steepened substantially during the quarter 10-year Treasury yield increased 85 basis points to end the fourth quarter at 2.44% 2-year U.S. Treasury yield increased 43 basis points to 1.19% 30-year mortgage rate increased 90 basis points ov
Slide 9: Ellington Financial: Outlook
Ellington Financial: Outlook We expect to continue to hold a diversified Credit portfolio, primarily consisting of: Loans, including: Consumer Loans and ABS, with an emphasis on establishing a steady pipeline through flow agreements Small Balance Commercial Mortgage Loans, especially distres
Slide 10: Credit Portfolio
Credit Portfolio
Slide 11: EFC: Long Credit Portfolio
EFC: Long Credit Portfolio Current Quarter Previous Quarter Long Credit Portfolio 12/31/16: $552MM(1)(2) Long Credit Portfolio 9/30/16: $490MM(1)(2) Distressed Corporate Loans and Equity, 5% Jumbo/ Distressed Corporate Euro CLO, 4% Average Px 57.7 Alt-A, 10% Euro CLO, 3% Loans and Equity, 4% Jumbo/
Slide 12: EFC: Long Credit Portfolio (continued)
EFC: Long Credit Portfolio (continued) Holdings Overview Holdings Overview Long Credit Portfolio 12/31/16: $552MM(1) Long Credit Portfolio 12/31/13: $700MM(1) Distressed Corporate Loans and Equity, 5% CLOs, 4% RMBS, 18% Consumer Loans and ABS, 21% RMBS, 82% CLOs 6% Residential Loans and REO, 16% Eur
Slide 13: Long Credit Portfolio as of December 31, 2016
EFC: Long Credit Portfolio as of December 31, 2016 Credit strategy is the main driver of earnings Long Credit securities and loan portfolio value: $526.6 million—excludes REO and equity investments in mortgage related entities Est. Yield at Market Fair Value Weighted Average Price at Ellington H
Slide 14: Credit Hedging Portfolio
EFC: Credit Hedging Portfolio(1)(2) Corporate CDS Indices / Instrument Tranches / Options / Single Single Name ABS CDS and Corporate Bonds/Corporate Category Names ABX Indices European Sovereign Debt Bond ETFs/Equities CMBX HY CDX OTR Bond Equivalent Units Value(3)(4) Bond Equivalent Value (4) Marke
Slide 15: Agency Portfolio
Agency Portfolio
Slide 16: EFC: Agency Long Portfolio
EFC: Agency Long Portfolio Current Quarter Previous Quarter Agency Long Portfolio 12/31/16: $827MM(¹) Agency Long Portfolio 9/30/16: $808MM(¹) 7% < 1% 5% < 1% FNMA Fixed - 30 Yr 7% 1% 4% <1% FNMA Fixed - 30 Yr 2% FNMA Fixed - 15 Yr 4% FNMA Fixed - 15 Yr 2% 2% FHLM Fixed - 30 Yr FHLM Fixed - 30 Yr 2%
Slide 17: EFC: Agency Interest Rate Hedging Portfolio
EFC: Agency Interest Rate Hedging Portfolio Current Quarter Previous Quarter Agency Interest Rate Hedging Portfolio 12/31/16: Agency Interest Rate Hedging Portfolio 9/30/16: Short $331 MM 10-year equivalents Short $201 MM 10-year equivalents >5 Yr Treasury 0-5 Yr Interest Futures Rate Swaps 0-5 Yr I
Slide 18: EFC: Agency Interest Rate Hedging Portfolio (continued)
EFC: Agency Interest Rate Hedging Portfolio (continued) Calculation of Exposure to Agency Pools Based on Fair Value: (In millions) Agency-related Portfolio 12/31/2016 9/30/2016 Long Agency RMBS $798 $788 Net Short TBAs (390) (393) Net Long Exposure to Agency RMBS $408 $395 Shorting “generic” pools
Slide 19: Borrowings
Borrowings
Slide 20: EFC: Repo Borrowings as of December 31, 2016
EFC: Repo Borrowings as of December 31, 2016 ($ in thousands) Repo Borrowings % of Total Remaining Days to Maturity Credit Agency U.S. Treasury Total Borrowings 30 Days or Less $94,849 $405,725 $5,428 $506,002 49.0% 31-60 Days 26,974 195,288 — 222,262 21.5% 61-90 Days 41,522 149,965 — 191,487 18.5%
Slide 21: EFC: Average Cost of Borrowings
EFC: Average Cost of Borrowings ($ In thousands) As of December 31, 2016 For the Quarter Ended December 31, 2016 Average Borrowings for Collateral for Borrowing Outstanding Borrowings (1) the Quarter Ended (1) Average Cost of(1)Funds Credit $261,927 $243,712 3.09% Agency RMBS 790,312 768,137 0.83% T
Slide 22: Supplemental Information
Supplemental Information
Slide 23: EFC: Gross Profit and Loss
EFC: Gross Profit and Loss Years Ended 2016 2015 2014 2013 2012 2011 2010 2009 2008 ($ In thousands) $ % $ % $ % $ % $ % $ % $ % $ % $ % Long: Credit 36,203 5.29 46,892 6.09 77,636 11.38 109,536 18.53 129,830 30.02 1,505 0.39 70,840 21.87 101,748 36.33 (64,565) (26.20) Credit Hedge and Other (40,548
Slide 24: EFC: Capital and Leverage
EFC: Capital and Leverage(1) Capital Usage Across Entire Portfolio(2) Notes 12/31/2016 (1) Excludes U.S. Treasury securities (2) Capital usage based on pro forma calculation of leverage generally applicable to long positions in target asset classes. 9/30/2016 (3) Assets per strategy capital used inc
Slide 25: EFC: Credit and Agency Fair Values and Average Prices
EFC: Credit and Agency Fair Values and Average Prices Credit and Agency Portfolios by Fair Value Credit $ In millions $ Agency 1,000.0 936.8 900.0 849.7 827.4 807.8 800.0 700.0 644.9 583.3 600.0 552.0 490.5 500.0 400.0 300.0 200.0 100.0 - 3/31/2016 6/30/2016 9/30/2016 12/31/2016 Average Price – Cred
Slide 26: EFC: Dividends and Expense Ratio
EFC: Dividends and Expense Ratio $0.55 Dividends Per Share Dividend Yield as of February 10, 2017 $0.50 11.1% (1) $0.45 $0.40 $0.50 $0.50 $0.45 $0.45 $0.35 $0.30 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Expense Ratio(2) 3.10% 3.07% 2.96% 2.95% 2.89% 2.82% 2.80% 2.65% 2.50% (1) Based on NYSE closing price as
Slide 27: EFC: Diluted Book Value per Share
EFC: Diluted Book Value EFC has successfully preserved book value through market cycles, while producing strong results for investors DBVPS Cumulative Dividends $45.00 $40.00 $35.00 $15.33 $18.17 Diluted Book Value per Share $16.87 $19.32 $12.25 $13.79 $20.32 $30.00 $9.96 $21.27 $8.56 $4.95 $6.66
Slide 28: Income Statement
Income Statement (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF OPERATIONS Three Month Period Ended Year Ended (In thousands, except per share data) December 31, 2016 September 30, 2016 December 31, 2016 Investment income Interest income $ 18,265 $ 16,662 $ 74,344 Other income 2,342 8
Slide 29: Balance Sheet
Balance Sheet (Unaudited) ELLINGTON FINANCIAL LLC CONSOLIDATED STATEMENT OF ASSETS, LIABILITIES AND EQUITY As of December 31, September 30, December 31, (In thousands, except share amounts) 2016 2016 2015(1) ASSETS Cash and cash equivalents $ 123,274 $ 179,618 $ 183,909 Restricted Cash 655 5,610 4,8
Slide 30: About Ellington
About Ellington EFC is managed by Ellington Financial Management LLC, an affiliate of Ellington Management Group, L.L.C. (“EMG”) EMG was founded in 1994 by Michael Vranos and five partners; currently has over 160 employees, giving EFC access to time-tested infrastructure and proprietary resource
Slide 31: Investor Contact
Investor Contact: Media Contact: Maria Cozine, Vice President of Investor Relations or Amanda Klein or Kevin Fitzgerald Lisa Mumford, Chief Financial Officer Gasthalter & Co. Ellington Financial LLC for Ellington Financial LLC (203) 409-3575 (212) 257-4170 Info@ellingtonfinancial.com Ellington@gasth